Second Thoughts in Congress on Oil Tax Breaks

WASHINGTON, April 26 - As anxiety spread in Congress on Wednesday over soaring oil prices, lawmakers in both parties said they were ready to take a tough look at oil and gas incentives they passed as recently as eight months ago.

Citing record industry profits and huge executive pay packages, the top Republican and top Democrat on the Senate Finance Committee asked the Internal Revenue Service to turn over tax returns for the nation's 15 biggest oil and gas companies.

Leading Republicans echoed President Bush's call Tuesday to trim about $2 billion in tax breaks Congress passed as part of the energy bill last August. Several prominent Democrats, not to be outdone, pushed for repealing oil and gas tax breaks worth more than $10 billion over the next five years.

"Nobody has any sympathy for oil companies on Capitol Hill right now," said Representative Jack Kingston, Republican of Georgia and vice chairman of the House Republican Conference. "You talk to someone driving to work in an F-150 pickup and paying $75 to fill up his tank, and everybody's on his side."

Both parties jockeyed for political advantage even as they were grasping for ideas. Most experts contend that the government has few options that would quickly reduce gasoline prices, and competing party agendas could block Congressional agreement on any meaningful legislation.

Lawmakers have introduced more than 30 energy bills in the last several months. But they reflect often -conflicting goals of reducing prices, increasing production and soothing consumer anger about oil industry profits.

Democrats called for a 60-day halt on collecting federal gasoline taxes, which are 18.4 cents a gallon, but they were openly split about the more radical step of imposing a windfall profits tax on major oil companies. For their part, many Republicans are torn between wanting to show their sympathy for consumers and maintaining their longstanding support for the oil industry.

"Nobody's happy with gasoline prices being where they are," said Representative Joe L. Barton, Republican of Texas and chairman of the House Energy and Commerce Committee, who last year championed scores of new tax breaks for the industry.

Congressional Republican leaders are negotiating with White House officials over a bill to expand on Mr. Bush's proposals for alternative fuels and conservation, but disarray among lawmakers was evident across Capitol Hill.

The energy industry is also politically divided. Most big integrated oil companies, like Exxon Mobil and Chevron, have shown no interest in defending the $2.7 billion in tax breaks in last year's energy bill.

But the hundreds of smaller independent producers want to preserve as many incentives as possible. In singling out tax and spending incentives to be eliminated, Mr. Bush did not criticize a new expansion of tax write-offs for smaller oil refineries.

"The big companies don't want them, don't need them and are not asking for them," said J. Robinson West, chairman of PFC Energy, an oil industry consulting firm. But the smaller independents, he said, "are not going to give up easily."

The Congressional Joint Committee on Taxation estimated Tuesday that oil and gas companies would receive about $10 billion in tax breaks over the next five years that are specifically aimed at their industry.

Most of those tax breaks have been around for many years. They allow energy companies to take substantial write-offs on their investments in new equipment and hefty "depletion allowances" as companies use up the oil and gas in a particular field.

Neither Mr. Bush nor Republican leaders in Congress have suggested an attack on the industry's main tax breaks. Nor are they proposing to trim back tax incentives written primarily for industry in general that also benefit major oil companies.

An error has occurred. Please try again later.

You are already subscribed to this email.

One obscure tax cut, for example, included in a 2004 law to promote domestic manufacturing, is expected to save energy companies at least $3.6 billion over the next decade. ConocoPhillips, which earned $13.5 billion in 2005, saved $106 million last year on that provision, which reduces the corporate tax rate on profits on goods produced in the United States.

President Bush and Congressional leaders are focusing on about $2 billion in tax breaks in last year's energy bill. Among other things, those tax breaks let companies write off in just two years the geology studies associated with exploration. For decades, the courts and the I.R.S. have said that these are capital investments that can be written off only slowly, as oil is produced from the fields.

Mr. Bush also called for repealing several hundred million dollars in subsidies, also in the energy bill, for an industry-run deepwater drilling research center in Sugar Land, Tex. That project's biggest champion was Representative Tom DeLay, the former House majority leader whose district includes Sugar Land.

Many Democrats had opposed the new tax breaks all along, and Senate Democrats pushed for a provision that would trim them in a broader tax bill that the Senate passed last fall. But that provision was not approved by the House.

On Wednesday, leading Republicans made it clear they were now willing and even eager to eliminate some of those tax breaks.

"I am happy to repeal tax breaks for the development of oil in foreign countries," said Senator Pete V. Domenici, Republican of New Mexico and chairman of the Senate Energy and Natural Resources Committee. "I cannot support the concept of tax breaks for oil companies while some American families are searching their budgets for the extra cash they need to fill their gas tanks."

But Republican lawmakers want to combine their seemingly tough new stance with measures to increase production. High on the list is a new attempt to open the Arctic National Wildlife Refuge to exploration.

Democrats are focusing more on taking things away from the industry. Senator John Kerry of Massachusetts proposed legislation this week to repeal all tax breaks for oil drilling and production -- about $10 billion over the next five years.

Senator Ron Wyden, Democrat of Oregon, proposed a measure to force energy companies to pay royalties to the government on all oil and gas they produce on federal leases in the Gulf of Mexico, if the price of crude oil is above $55 a barrel. Some energy companies are now allowed "royalty relief" expected to total about $7 billion over the next five years.

The mounting suspicion of oil companies was apparent in a letter to the I.R.S. from Senator Charles E. Grassley, the Iowa Republican who is chairman of the Finance Committee, and Senator Max Baucus of Montana, the committee's senior Democrat. They demanded that the I.R.S. let them review the past five years of tax returns filed by the nation's 15 biggest oil companies.

The senators pointedly noted an "extremely lucrative retirement plan by one oil and gas industry executive" -- an allusion to Lee R. Raymond, former chairman of Exxon Mobil, who received $398 million in compensation on retiring last year.

"We're seeing record profits and significant executive compensation in the oil and gas industry," Mr. Grassley said. "I want to make sure the oil companies aren't taking a speed pass by the tax man."

Red Caveney, president of the American Petroleum Institute, which represents the large oil companies, said his group would not fight to retain the newest tax breaks.